MW: Treasurys edge down before 7-year-note auction
By Deborah Levine, MarketWatch
NEW YORK (MarketWatch) -- Treasury prices came under pressure on Thursday, nudging short-term yields higher, ahead of the government's last debt sale of the week: an auction of 7-year notes.
Additionally, a lack of more bad news about sovereign debt in Europe provided a little relief to other markets and the euro, reducing the desire for the relative safety of the dollar and U.S. debt.
Yields on 2-year notes (UST2YR 1.03, 0.00, 0.00%) rose as high as 1.07% earlier in the session, and lately were little changed at 1.03%. Bond yields move inversely to prices and a basis point is 0.01%.
Yields on 10-year notes (UST10Y 3.76, +0.07, +2.01%) were little changed at 3.77%.
The Treasury Department will accept bids on $32 billion in new 7-year notes (UST7YR 3.20, +0.09, +2.79%) until 1 p.m. Eastern time.
The auction may get a little extra support coming just days before the end of the month, when lots of bond fund managers have to buy debt to extend the duration of their portfolios. Duration is a measure of price sensitivity to a change in interest rates, and is partly determined by maturity.
Benchmark bond indexes, at the end of every month, add any debt that was sold during the period that usually extended the duration of the index. Fund managers who try to match their holdings to benchmark indexes therefore buy recently-issued debt at month end.
The 7-year-note sale "has the coveted late month auction slot that makes it an enticing choice for indexers looking to add paper for the month-end Treasury index extension," said Bill O'Donnell, head of Treasury strategy at RBS Securities.
The government sold inflation-indexed debt on Monday and 2-year notes on Tuesday. Those sales were followed by a 5-year-note sale (UST5YR 2.50, +0.08, +3.39%) on Wednesday, which garnered good demand from foreign and domestic money managers. At auctions these tend to get classified as indirect and direct bidders.
"The good news is that yesterday's combined indirect and direct bidder award in 5-years tells us that retail is apparently alive and well and has the buying shoes on," O'Donnell wrote in a note.
Debt prices remained down after the Labor Department said 448,000 Americans filed initial claims for jobless claims last week, down 11,000 from the prior week. Continuing claims also fell. Read about jobless claims.
